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IMPLEMENTATION PLAN IN RESPONSE TO THE

MARCH 2017 EXECUTIVE BOARD-ENDORSED


RECOMMENDATIONS FOR THE IEO EVALUATION
REPORTTHE IMF AND THE CRISES IN GREECE,
IRELAND, AND PORTUGAL
IMF staff regularly produces papers proposing new IMF policies, exploring options for
reform, or reviewing existing IMF policies and operations. The Report prepared by IMF
staff and completed on March 17, 2017, has been released.

The staff report was issued to the Executive Board for information. The report was
prepared by IMF staff. The views expressed in this paper are those of the IMF staff and
do not necessarily represent the views of the IMF's Executive Board.

The IMFs transparency policy allows for the deletion of market-sensitive information
and premature disclosure of the authorities policy intentions in published staff reports
and other documents.

Electronic copies of IMF Policy Papers


are available to the public from
http://www.imf.org/external/pp/ppindex.aspx

International Monetary Fund


Washington, D.C.

2017 International Monetary Fund


IMPLEMENTATION PLAN IN RESPONSE TO THE EXECUTIVE
BOARD-ENDORSED RECOMMENDATIONS FOR THE IEO
March 16, 2017 EVALUATION REPORTTHE IMF AND THE CRISES IN
GREECE, IRELAND, AND PORTUGAL

EXECUTIVE SUMMARY

This paper sets out Managements response to the Independent Evaluation Offices
(IEO) report The IMF and the Crises in Greece, Ireland, and Portugal as part of the
Management and staff follow-up to an IEO evaluation. The implementation plan
proposes specific actions to address the recommendations endorsed by the Executive
Board in its July 19, 2016 discussion. The implementation plan notes the Boards
endorsement of the principles that the IMFs technical analysis should remain
independent, that existing policies should be followed and should not be changed
without careful deliberation, and that the Executive Board and Management should
reaffirm their commitment to accountability and transparency, as well as the role of
independent evaluation in fostering good governance. As to the IEOs specific
recommendations supported by the Board, the implementation plan proposes actions
to address the need for the Fund to clarify how guidelines on program design apply to
currency union members, the need for the Fund to establish a policy on cooperation
with regional financing arrangements, and the need to further strengthen Fund
cooperation with the IEO, including on modalities of interactions between the IEO and
Fund staff and the IEOs access to information.

The implementation of some of the proposed actions is already underway and some
actions have been included in the Fall 2016 Work Program. The paper also explains how
implementation will be monitored by the Executive Board.
MIP IN RESPONSE TO IEO EVALUATIONTHE IMF AND THE CRISES IN GREECE, IRELAND, AND PORTUGAL

Approved By Prepared by the Strategy, Policy, and Review Department in


Siddharth Tiwari consultation with other departments by Greetje Everaert under the
guidance of Yan Sun.

CONTENTS

INTRODUCTION __________________________________________________________________________________ 3

IEO RECOMMENDATIONS, BOARD REACTIONS, AND IMPLEMENTATION PLAN ____________ 3

RESOURCE IMPLICATIONS _______________________________________________________________________ 7

ANNEXES
I. IEO Evaluation of The IMF and the Crises in Greece, Ireland, and Portugal: Recommendations,
Board Response, and Proposed Follow-Up ________________________________________________________ 9
II. Resource Implications of the Management Implementation Plan _____________________________ 11

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INTRODUCTION

1. This paper lays out a forward-looking management implementation plan (MIP) for the
IEO evaluation The IMF and the Crises in Greece, Ireland, and Portugal. During the Board
discussion of the report, Executive Directors welcomed the report and underscored the importance
of the IEOs role in enhancing the learning culture within the Fund, strengthening the Funds external
credibility, and supporting the Executive Boards oversight responsibilities. Directors broadly shared
the general thrust of the IEOs main findings and broadly endorsed its recommendations, with some
caveats. Directors and Management recognized that the Fund needs to learn from the experience of
the three Euro area crisis programs, and vital lessons learnt can aspire the Fund to do better in
avoiding and managing future crises. At the same time, Directors noted the circumstances prevailing
at the time were difficult and unprecedented, and uncertainty and fear of contagion were acute.
Assessing the Funds performance in this broader context, they considered that the Fund-supported
programs had succeeded in buying time to build European firewalls, preventing the crisis from
spreading, and restoring growth and market access in Ireland and Portugal. They observed that the
political economy of the Greek crisis was unique and complex. Directors generally viewed the
unprecedented Troika arrangement as efficient overall, noting in particular how the Funds
engagement had evolved over time. Nevertheless, the need to coordinate and reach common
ground with the European partners might have affected the Funds agility as a crisis manager, and
gave rise to criticism that its decision-making process lacked transparency. This implementation plan
proposes a range of actions to address the recommendations of the evaluation.

IEO RECOMMENDATIONS, BOARD REACTIONS, AND


IMPLEMENTATION PLAN

2. The IEO report made five main recommendations, aimed at improving the Funds
governance and operational effectiveness in the context of the Funds experience with lending to
Euro area members. This section lays out each of these recommendations, along with Executive
Directors reactions, the specific actions to address those recommendations that were endorsed by
the Board, and how these will be monitored. The effectiveness and scope of these actions will
continue to be reviewed and adjusted as and when warranted.1

3. The principle underlying the IEOs first recommendation that the IMFs technical
analysis should remain independent was supported, and several initiatives are underway to
further improve the analytical underpinnings of surveillance and program design.

1
Annex I summarizes the evaluations recommendations, Directors responses, proposed measures, timelines, and
responsibilities for implementation. The implementation of this plan will be monitored through forthcoming Periodic
Monitoring Reports (PMRs).

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IEO Recommendation 1: The Executive Board and Management should develop procedures to
minimize the room for political intervention in the IMFs technical analysis.

Board Reactions: Directors broadly agreed with the principle underlying recommendation 1
that the IMFs technical analysis should remain independent. They noted that procedures
currently in place have been strengthened substantially in recent years in the direction
recommended by the IEO.2 That notwithstanding, they recognized that there remains scope
for further improving the analytical underpinnings of both surveillance and program design,
especially in the areas of economic forecasts, external sector assessment, and integrated
surveillance.3

Implementation Plan: Continuous improvements in the analytical underpinnings of both


surveillance and program design. The analytical underpinnings of both surveillance and
program design are continuously being improved as part of ongoing upgrades in the quality
of the Funds analysis. Importantly, the 2014 Triennial Surveillance Review made several
specific recommendations to strengthen the quality of surveillance, and in this context, staff
will prepare an interim assessment for the 2019 Comprehensive Surveillance Review by the
end of 2017 to update the Board on the status of this agenda. Meanwhile, several initiatives
are already underway. For instance, since the Board meeting, in the area of economic
forecasting, the Institute for Capacity Development (ICD) has launched internal staff training
as part of the staff Structured Curriculum on Macroeconomic Forecasting along with other
courses and seminars geared to enhancing staffs econometric toolkit. Moreover, ICD will
further organize workshops for area departments in collaboration with the Research
Department (RES), Risk Management Unit (RMU), and the Strategy, Policy, and Review
Department (SPR), to share best practices and techniques in forecasting in early FY2018. RES
is developing a tool for country teams and reviewers to strengthen monitoring of growth
forecast errors by April 2017; a tool to check the sensitivity of staffs debt sustainability
projections under alternative macroeconomic assumptions has been rolled out on a pilot
basis by SPR. In the area of improving integrated surveillance, the number of Article IVs with
enhanced macro-financial coverage has been expanded from 24 reports in 2015 to 67 in
2016, and 32 countries have been identified for operationalizing an enhanced focus on
macro-structural issues in surveillance. In the area of external sector assessments, a recent
methodological note on External Balance Assessment (EBA)-lite explains the extension and
application of EBA approaches to a broader set of countries, while the annual External Sector
Reports continue to be made more thematic. Moreover, the Funds extensive internal review
process, which involves staff members with a high level of expertise and regional diversity,
provides quality and objectivity safeguards of the Funds analysis.

2
In particular, informal Board engagement has increased in depth and frequency.
3
The Managing Director also did not accept the premise of political intervention, which, she noted, the IEO failed to
establish in its report, but supported the principle that the IMFs technical analysis should remain independent.

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4. The principle underlying the IEOs second recommendation that existing policies
should be followed and not be changed without careful consideration by the Board was
supported, but since Directors noted that adequate safeguards are currently in place, no
further action is required.

IEO Recommendation 2: The Executive Board and Management should strengthen the existing
processes to ensure that agreed policies are followed and that they are not changed without careful
deliberation.

Board Reactions: Directors supported the underlying principle that existing policies should
be followed and that they should not be changed without careful deliberation by the Board.
They noted that the systemic exemption to the exceptional access criteria, which had been
introduced under extraordinary circumstances, should have been considered more carefully
and transparently by the Board. They appreciated the Managing Directors commitment to
handle similar circumstances better in the future and follow existing policies diligently. Most
Directors considered that checks and balances are adequately in place.

Implementation Plan: Most Directors considered that checks and balances are adequately in
place and the Managing Director is committed to follow existing policies diligently. In that
light, no further action is required.

5. The IEOs third recommendation on clarifying program design in currency union


members was supported by the Board, and a Board paper on this issue will be prepared.

IEO Recommendation 3: The IMF should clarify how guidelines on program design apply to currency
union members.

Board Reactions: Directors supported the need to clarify how guidelines on program design
apply to currency union members, taking into account the need to ensure evenhandedness
as well as the heterogeneity across different currency unions. Directors had differing views
on the modalities for setting conditionality at union-level institutions, while still others
stressed that evenhanded surveillance across the membership would help dispel the
perception that euro area countries are treated differently at the Fund.

Implementation Plan: Staff will engage the Board on program design in currency union
members in June 2017, in line with the Fall 2016 Work Program. The paper will review the
Funds approach to setting conditionality with currency union members, with the aim of
soliciting Board views on establishing clear guidance and principles designing Fund-
supported programs for currency union members.

6. The IEOs fourth recommendation on establishing a policy on cooperating with


regional financing arrangements (RFAs) also received Board support, and a Board paper on
this issue will be prepared.

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IEO Recommendation 4: The IMF should establish a policy on cooperation with regional financing
arrangements.

Board Reactions: Directors supported the need to establish a policy on cooperation with
regional financing arrangements (RFAs), emphasizing the need to maintain flexibility, given
the different mandates, policies, and institutional arrangements of RFAs.

Implementation Plan: A Board paper on IMFs Cooperation with Regional Financing


Arrangements, will be prepared by May 2017 for Board engagement, in line with the Work
Program. The paper will clarify Fund cooperation with RFAs with the aim of better facilitating
such cooperation and thereby strengthening the Global Financial Safety Net (GFSN).
Building on a 2013 Board paper discussed in an informal Board meeting Stocktaking the
Funds Engagement with Regional Financing Arrangementsand G-20 conclusions, it will
establish for the Boards feedback and guidance general principles of engagement, including
in areas related to surveillance, capacity building, and program involvement (design,
financing, and monitoring), with RFAs and their members. The paper will elaborate on
procedural issues between the Fund and RFAs that can be applied in an evenhanded and
transparent way, while taking into account the region-specific differences and the unique
characteristics of specific RFAs.

7. The IEOs fifth recommendation on the Executive Board and Management committing
to accountability, transparency, and the role of the IEO in fostering good governance was
affirmed by the Board and Management, and specific actions, including an IEO/Fund staff
protocol, are proposed for follow-up.

IEO Recommendation 5: The Executive Board and Management should reaffirm their commitment to
accountability and transparency and the role of independent evaluation in fostering good governance.
In elaborating on this recommendation, the IEO report made specific suggestions, including that the
Board should establish or reaffirm clear guidelines on how to keep records of the process by which
important program-related decisions are made at the staff and Management level; on the
preparation and retention of the records of informal Board meetings; on the IEOs access to
confidential documents when there is ongoing sensitivity and with what time lags such documents
should be made available; and on the modality of interactions between the IEO and IMF staff.

Board Reactions: Directors supported that the Executive Board and Management should
reaffirm their commitment to accountability and transparency, as well as the role of
independent evaluation in fostering good governance. Directors underscored their strong
support for independent evaluation and the IEOs critical role in the Fund. In this context,
they noted with concern the difficulty that the IEO had experienced in obtaining confidential
documents that it deemed necessary for conducting the evaluation in a timely manner. They
therefore appreciated the IEOs specific suggestions under this recommendation to further
strengthen Fund cooperation with the IEO, including with regard to the modality of
interactions between the IEO and Fund staff and the IEOs access to information, and
welcomed the Managing Directors strong commitment to ensure smooth collaboration

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between the IEO and the Fund, especially the Managing Directors proposal to develop an
IEO/Fund staff protocol. They also underscored the importance of timely preparation of Ex-
Post Evaluation for all exceptional access arrangements.

Implementation Plan: The implementation includes several initiatives:

Re-affirmed commitment. In the Chairs summing up and in her statement to the Board,
the Board and the Managing Director respectively re-affirmed that the Board,
Management, and staff have been, and will continue to be, committed to accountability,
transparency, and the role of the IEO.

Record keeping. Staff will remain guided by the existing processes in place which aim at
proper record keeping on program-related documents as well as actions taken/decisions
made at the staff and Management level. At the level of the Board, in previous meetings
of the Agenda and Procedures Committee (APC) and the Evaluation Committee (EVC),
Directors agreed that, based on the existing framework for information sharing with the
IEO, records of informal Board sessions, including transcripts, could be shared with the
IEO, noting the need to treat the confidential nature of this material accordingly.
Procedures for preparing and retaining transcripts of informal Board sessions, and the
issue of access to the transcripts, were discussed by the Agenda and Procedures
Committee of the Executive Board (APC) in early 2017 (EB/APC/Mtg/17/1). The newly
agreed procedures by the Board will be reflected in the Compendium of Executive Board
Work Procedures.

An IEO/Fund staff protocol. An IEO/Fund staff cooperation protocol is being developed


jointly by SPR and LEG staffs and the IEO, in line with the existing rules, policies, and
procedures governing the sharing of confidential information between staff and the IEO,
and will be issued by early 2017 as an operational guidance to staff on cooperation with
the IEO. It will clarify the importance of staffs cooperation and the principle of open
communication, the relevant protocols on information requests from the IEO and
sharing of information by staff, and the confidentiality of shared information. The
protocol will be issued to the Executive Board for information.

RESOURCE IMPLICATIONS
8. The initiatives outlined above would have some resource costs. The large majority of the
deliverables underlying these recommendations can be accommodated without significant new
resource implications, including because several of these deliverables have been or are being acted
upon already. However, costs associated with the preparation and retention of transcripts of
informal Board meetings will require additional recurrent staff resources. Specifically:

Recommendation 1 to develop procedures to minimize the room for political intervention


was not supported by the Board, although there was broad support for the underlying
principle that the IMFs technical advice should remain independent and that there remains

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MIP IN RESPONSE TO IEO EVALUATIONTHE IMF AND THE CRISES IN GREECE, IRELAND, AND PORTUGAL

room to improve the analytical underpinnings of both surveillance and program design. The
latter is made part of several ongoing initiatives, with resource implications that can be
addressed within the currently planned allocations.

Recommendation 2 to strengthen existing processes to ensure that agreed policies are


followed and are not changed without careful deliberation by the Board requires no
additional action as adequate safeguards for this are in place and, hence, has no resources
implications.

Recommendation 3 to clarify guidelines on program design in currency unions will require


1.5 Full Time Equivalents (FTE) to produce a Board paper as a one-off cost. As this action
item has already been included in the Fall 2016 Work Program, it has no additional resource
implications.

Recommendation 4 to establish a policy on cooperation with regional financing


arrangements will be accommodated with 1.5 FTE to produce a Board paper as a one-off
cost. As this action item has already been included in the Fall 2016 Work Program, there are
no additional resource implications.

Recommendation 5 on reaffirming commitment to accountability and transparency and the


role of independent evaluation in fostering good governance requires no specific action
beyond the reaffirmation of their commitment to this already granted by Management and
the Board. However, the implementation of the suggestions under this recommendation to
further strengthen Fund cooperation with the IEO (including with regard to the modality of
interactions between the IEO and Fund staff and the IEOs access to information) will require
small one-off costs to develop the IEO protocol that will be met through reallocating
existing resources; costs associated with the preparation and retention of transcripts of
informal Board meetings would require additional recurrent staff resources of 1 FTE.
Resource costs of the proposed actions will need to be included in the FY201820 Medium-
term Budget.

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Annex I. IEO Evaluation of The IMF and the Crises in Greece, Ireland, and
Portugal: Recommendations, Board Response, and Proposed Follow-Up
IEO Executive Directors Follow-Up Plan and Timeline Accountability
Recommendation Responses
1. The Executive Directors broadly agreed with the Ongoing improvements on the All departments
Board and underlying principle that the IMFs analytical underpinnings of both
Management should technical analysis should remain surveillance and program design,
develop procedures to
independent. They noted that especially in the areas of economic
minimize the room
procedures currently in place have forecast, external sector
for political
intervention in the been strengthened substantially in assessments, and integrated
IMFs technical recent years in the direction surveillance, as part of regular
analysis. recommended by the IEO. That processes to continuously improve
notwithstanding, they recognized the technical analysis at the Fund.
that there remains scope for further
improvements on the analytical
underpinnings of both surveillance
and program design.

2. The Executive Directors supported the underlying No further action required. n.a.
Board and principle that existing policies
Management should should be followed and that they
strengthen the
should not be changed without
existing processes to
careful deliberation by the Board.
ensure that agreed
policies are followed They noted that the systemic
and that they are not exemption to the exceptional
changed without access criteria, which had been
careful deliberation. introduced under extraordinary
circumstances, should have been
considered more carefully and
transparently by the Board.

SPR and LEG


3. The IMF should Directors supported this A Board paper on program design
clarify how guidelines recommendation. They emphasized for currency union members to be
on program design that, while such guidelines would completed by June 2017.
apply to currency
help ensure evenhandedness across
union members.
the membership, it will be
important to take due account of
heterogeneity across different
currency unions.

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IEO Executive Directors Follow-Up Plan and Timeline Accountability


Recommendation Responses
SPR
4. The IMF should Directors supported this A Board paper on IMFs
establish a policy on recommendation. In doing so, they Cooperation with Regional
cooperation with emphasized the need to maintain Financing Arrangements to be
regional financing
flexibility, given the different completed by May 2017.
arrangements.
mandates, policies, and institutional
arrangements of RFAs.

5. The Executive Directors agreed with this Staff and Management will All departments
Board and recommendation. Directors continue to follow established
Management should underscored their strong support procedures to ensure proper
reaffirm their
for the independent evaluation and record keeping on program-
commitment to
the IEOs critical role in the Fund. related documents and actions
accountability and
transparency and the They noted with concern the taken/decisions made.
SEC
role of independent difficulty that the IEO had
The APC discussed in early 2017
evaluation in experienced in obtaining
(EB/APC/Mtg/17/1) to retain the
fostering good confidential documents that it
transcripts of informal Board
governance. deemed necessary for conducting
meetings indefinitely. SEC agreed
the evaluation in a timely manner.
to explore ways to make these
They therefore appreciated the
transcripts available to Directors
IEOs specific suggestions under
in an expeditious and secure
this recommendation to further
manner, and to reflect newly
strengthen Fund cooperation with
agreed procedures in the Board
the IEO, including with regard to
Compendium.
the modality of interactions
Develop IEO/Fund staff SPR and LEG
between the IEO and Fund staff and
the IEOs access to information. cooperation protocol by early
Directors welcomed the Managing 2017.
Directors strong commitment to
ensure smooth collaboration
between the IEO and the Fund, and
to consider an IEO/Fund staff
protocol.

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Annex II. Resource Implications of the Management


Implementation Plan

IEO Recommendation One-off Resources Recurring Resources


Description Cost Cost
1. The Executive Board and management should develop
procedures to minimize the room for political intervention in the Ongoing improvements .. Allocated
IMFs technical analysis.
2. The Executive Board and management should strengthen the
existing processes to ensure that agreed policies are followed and - - -
that they are not changed without careful deliberation.

3. The IMF should clarify how guidelines on program design apply


Board paper 1.5 FTE ..
to currency union members.

4. The IMF should establish a policy on cooperation with regional


Board paper 1.5 FTE ..
financing arrangements.
5. The Executive Board and management should reaffirm their IEO protocol 0.1 FTE ..
commitment to accountability and transparency and the role of
independent evaluation in fostering good governance. Record keeping .. 1 FTE

Total 3.1 FTE 1 FTE

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